The Dow experienced one of its worst weeks in recent times, closing in the red on every single day. Declines in energy and airline stocks led to a late-hour selloff on Monday, leading to losses for the blue-chip index. The Dow declined marginally on Tuesday as investors weighed upbeat corporate results against a drop in energy shares.
Global growth worries and concerns over an outbreak of the Ebola virus led to losses for the blue-chip index on Wednesday. The Dow took losses on Thursday even as other benchmarks ended a choppy trading session almost unchanged. The Dow has lost nearly 1.3% during the first four trading days.
Last Week’s Performance
The Dow lost 0.7% last Friday due to declines in technology stocks. Broad based selling of technology shares took place after Microchip cautioned investors that they could expect discouraging news coming out from the sector. Shares of rival chipmakers also took a beating. Intel Corporation (INTC) lost 5.1%. The Dow entered the negative zone for the year and had lost 0.2% in 2014 at that point.
Over the week, the Dow declined 2.7%. Benchmarks ended in the red zone for the week as concerns about global growth and particularly that of the Eurozone’s dented investor sentiment. On Thursday, the Federal Statistics Office reported that exports in Germany plunged 5.8% in August, registering its biggest drop since early 2009. Germany’s industrial production and factory orders data were also disappointing.
Investors also remained concerned about dismal economic data from China and Spain. Worries about third quarter earnings results too dented investor sentiment. The overall trend in estimates has been on the lower side for third quarter earnings.
Separately, decline in oil prices dragged down energy stocks on Thursday. The WTI crude oil price dropped 1.8% to $85.77 per barrel, reaching its lowest level since Dec 2012.
Among the positives was assurance provided by Fed Minutes to investors that the central bank will be patient before hiking rates. This helped benchmarks end in the green zone on Wednesday.
The Dow This Week
The Dow plunged 1.4% on Monday after declines in energy and airline stocks triggered a late-hour selloff. Decline in oil prices dragged down energy stocks on Monday. Meanwhile, airline stocks slipped after a nurse in Dallas was infected with Ebola virus. Airline stocks were hit hard by Ebola concerns as it might hamper demand for travel-related services.
Investors also remained concerned about slowdown in the global economy. The International Monetary Fund (IMF) expressed concern over stagnant growth in the Eurozone in its latest global economic outlook released last week.
At that point, the blue-chip index had dropped 4% or 673.15 points over the last three trading sessions. This is the Dow’s biggest three-day plunge since 2011.
Benchmarks finished almost unchanged on Tuesday as investors weighed upbeat corporate results against a drop in energy shares. While news about better-than-expected third quarter earnings results boosted the markets, drop in energy shares erased most of the gains.
Energy shares took a beating after oil prices plunged to its lowest level in last two years. Weakness in the health care sector also had a negative impact on the markets. Shares of Johnson & Johnson (JNJ) dropped 2.1% despite posting positive earnings results and raising its 2014 earnings guidance.
Oil prices nosedived after International Energy Agency trimmed its forecast for oil demand for both 2014 and 2015. Some financial heavyweights such as JPMorgan Chase & Co. (JPM) posted upbeat quarterly earnings results. This drop in energy stocks compelled benchmarks to give away most of their early gains. The Dow declined a meager 0.04%.
The Dow declined 1.1% following a volatile session on Wednesday. The blue chip index had dropped as much as 460 points at one point. Global growth worries and concerns over outbreak of Ebola virus continued to affect markets.
Investors were unnerved following news that a second nurse was infected with Ebola virus in the US. Airline stocks were hit hard on Ebola concerns. Meanwhile, the International Monetary Fund (IMF) lowered global growth forecast to 3.3% this year, down from previous forecast of 3.4%.
A flurry of disappointing economic reports also added to the bearish mood. U.S. retail sales declined for the first time in eight months in September. Retail sales dropped 0.3% in September, in contrast to the previous month’s gains of 0.6%. Manufacturing activity in New York dropped to 6.2 in October from 27.54 in September. Separately, the U.S. Producer Price Index (PPI) for finished goods decreased 0.1% in September, contrary to the consensus estimate of a rise by 0.1%.
However, a late show of strength by small-cap and energy shares helped benchmarks erase some of the losses. The final-hour rally also saved benchmarks from registering their worst declines in three years.
Benchmarks ended a choppy trading session almost unchanged on Thursday following encouraging comments from St. Louis Federal Reserve president James Bullard. Bullard sparked possibility of continuing with bond repurchase plan. Bullard said the Federal Reserve should extend its quantitative easing program beyond October in order to counteract a possible drop in inflation.
Investors also weighed positive economic data and upbeat corporate results against global growth worries. Industrial production rose 0.1% in September after slipping 0.2% in August. Meanwhile, claims for unemployment benefits declined to its lowest level since Apr 2000.
On the earnings front, The Goldman Sachs Group, Inc. (GS) reported third-quarter 2014 earnings per share of $4.57, significantly outpacing the Zacks Consensus Estimate of $3.22. Other companies such as UnitedHealth Group Incorporated (UNH) also posted upbeat third quarter results.
The blue-chip index lost nearly 0.2%, ending in the red zone for the sixth-straight session. This is its longest losing streak since Aug 2013. However, the Dow recouped a 206-point loss earlier in the session.
Components Moving the Index
Intel reported strong third-quarter earnings. Intel’s earnings of 66 cents a share were up 17.9% sequentially and 13.8% year over year and better than the Zacks Consensus Estimate of 65 cents.
While Intel continues to make progress in the mobile segment, its fortunes are still tied to the PC and data center segments, where market stabilization, increasing form factors, share gains and new products were positives.
Johnson & Johnson reported third-quarter 2014 earnings (excluding special items) of $1.50 per share, well above the Zacks Consensus Estimate of $1.42 per share and 10.3% above the year-ago earnings.
Johnson & Johnson’s third quarter sales jumped 5.1% year-over-year to $18.5 billion, beating the Zacks Consensus Estimate of $18.4 billion. While operational factors favorably impacted sales by 5.8%, currency fluctuations had a negative impact of 0.7%.
Including one-time items, Johnson & Johnson reported third quarter earnings of $1.66 per share, well above the year-ago earnings of $1.04 per share. The company recorded an after-tax net gain of approximately $1.1 billion from the divestiture of Ortho-Clinical Diagnostics.
JPMorgan Chase & Company reported earnings of $1.62 per share, beating the Zacks Consensus Estimate of $1.39. The number also compares favorably with $1.42 earned in the year-ago quarter.
Earnings exclude the 26 cents per share impact related to the after-tax Firmwide legal expense. Considering this, the company has earned $1.36 per share.
Legal charges aside (though significantly lower year over year), there were no major negative impacts during the quarter. Top-line strength was enough to mitigate the majority of negatives.
Managed net revenue of $25.2 billion in the quarter was up 5% from the year-ago quarter. It also compares favorably with the Zacks Consensus Estimate of $24 billion.
Managed non-interest revenues were up 7% from the year-ago quarter to $13.8 billion. Also, net interest income increased 4% to $11.4 billion, primarily reflecting the impact of higher investment securities yields and lower interest expense, partially offset by lower loan yields.
Goldman Sachs Group, Inc. reported third-quarter 2014 earnings per share of $4.57, significantly outpacing the Zacks Consensus Estimate of $3.22 and increased from the year-ago figure of $2.88.
Higher investment banking and fixed income revenues along with strong capital deployment activities were the positives for the quarter. However, increased expenses were a concern. Moreover, lower trading revenues reflected market volatility.
Net income applicable to common shareholders in the quarter was $2.14 billion, increasing 50% from $1.43 billion recorded in the prior-year quarter.
UnitedHealth Group Inc. reported third-quarter 2014 earnings of $1.63 per share, beating the Zacks Consensus Estimate by 10 cents. Earnings grew 6.5% year over year.
UnitedHealth posted revenues of $32.8 billion, up 7.2% year over year and marginally ahead of the Zacks Consensus Estimate of $32.7 billion. Organic growth and business expansion in both health care benefits and health care services boosted results.
Total operating cost came in at $29.9 billion, up 6.7% year over year primarily due to higher, medical and operating costs. Operating margin of 8.9% increased 30 bps year over year.
American Express Co. (AXP) or AmEx reported third-quarter 2014 operating earnings per share of $1.40, which surpassed the Zacks Consensus Estimate of $1.38. This marked the company’s third consecutive earnings beat. EPS also topped the year-ago quarter figure of $1.25 by 12.6%.
Net income from operations climbed 8% year over year to $1.48 billion from $1.37 billion in the year-ago period.
AmEx’s total billed business, or global card spending, continued to witness improvement in the U.S. and overseas, increasing 9% year over year to $258.1 billion. The rise came from the cards used in the U.S. as well as internationally, both of which jumped 9% each to $173.0 billion and $85.1 billion, respectively.
The Boeing Co. (BA) announced that Garuda Indonesia, the country’s flag-carrier airline, placed an order for 50 jets, worth $4.9 billion at list prices.
Specifically, Garuda Indonesia will purchase 46 737 MAX 8s and will convert existing orders for four Next-Generation 737-800s to 737 MAX 8s. First delivery of the 737 MAX is scheduled for 2017.
Performance of the Top 10 Dow Companies
The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has lost 3.2%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
-2.3% |
+3.1% |
|
IBM |
-3% |
-5.4% |
|
GS |
-4.7% |
+9.6% |
|
MMM |
-2.4% |
1.9% |
|
BA |
-1.7% |
-6% |
|
CVX |
-2.1% |
-10.2% |
|
UTX |
-0.3% |
-16.3% |
|
XOM |
-0.7% |
-9.8% |
|
MCD |
-3.4% |
-10.3% |
|
CAT |
+1% |
-9.3% |
Next Week’s Outlook
The recovery of energy stocks on Thursday is a good sign for markets. This was one negative leading to consistent declines for energy stocks. Indications that the Fed could continue with its bond repurchase plan is another positive. Other benchmarks have responded enthusiastically to these factors. However, the Dow continues to languish in the red.
This week witnessed mixed economic data. Next week also features certain key economic reports. Good news on this front would come as a much needed boost to the markets. Meanwhile, earnings have been mostly on the positive side. The only worry which continues to plague investors is the spectre of a global slowdown. If other factors manage to outweigh such fears, the Dow could rebound in the days ahead.
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